Investor protectionInvestors participating in any market should be interested in knowing how they will be protected. Protected from what, you might be thinking? Ultimately, it is loss of money from circumstances that do not fall in the risk vs reward spectrum.

Examples include:

  • market manipulation
  • insider trading
  • conflicts of interest
  • unfair and improper practices
  • fraud
  • adequacy and accuracy of accounting and disclosures
  • misrepresentation
  • institutions that are not properly capitalized or not managed by professionals

Certain risks are a part of investing and those risks could sometimes lead to a loss – we’ll consider these in an upcoming article Investment Risks: A Guide for Small Investors – but as you can see from the list above, investors can be taken advantage of in many ways.

A properly functioning financial system must have the appropriate checks and balances to give investors participating in the market the confidence that: a level playing field exists; both funds entrusted to companies, and the companies themselves, are properly managed; and investors have an avenue to air complaints.

Let’s review the major forms of protection.

Central Bank of Trinidad & Tobago (CBTT)

We mentioned in Trinidad and Tobago’s Financial System that CBTT has a very broad mandate, and while we do not intend to cover it fully, CBTT contributes in the following ways to investor protection:

Licenses

CBTT requires institutions to be licensed before they can provide services of a financial nature. This means without a license, an entity would be operating illegally, and CBTT can stop their activities. There are many requirements to pass before a license is obtained, which in itself is an approach to ensure licenses are awarded to properly qualified applicants.

Regulations

In each financial sector, CBTT requires institutions to follow guidelines and regulations to ensure all institutions operate within the same framework of rules and at a minimum level of safety and soundness.

Supervision

CBTT performs continuous supervisory activities to determine whether regulated entities are in compliance with their respective legislation and are in a sound financial condition. The responsibility for fulfilling this mandate rests with the Financial Institution Supervision Department within the Central Bank.

CBTT has the authority to impose sanctions where breaches occur and to issue compliance directions either for breaches or where there are instances of unsound and unsafe practices or conditions.

Deposit Insurance Corporation

One of the key protections for small savers is deposit insurance, which protects depositors of licensed institutions upon the failure of these institutions. Put simply, if your deposit qualifies, you are guaranteed to get your money back if the company goes bankrupt. In Trinidad and Tobago, this role is performed by the Deposit Insurance Corporation.

24 institutions currently are covered by deposit insurance. The list can be accessed here.

In summary, funds in savings, current, and fixed deposit accounts (TT$ only – foreign currencies are not covered) are protected up to TT$125,000.00 (there are rules governing how the amount is determined and applied). Note, these are the ONLY instruments covered.

Owing to the existence of deposit insurance protection, simple bank accounts tend to be one of the safest places for individuals with a small amount of savings, with concentration risk not being particularly relevant for amounts up to TT$125,000.00.

If, in the search for a higher return, you choose a type of investment not covered by deposit insurance or if you have amounts greater than TT$125,000 in qualifying instruments, applying the principle of spreading your eggs could minimize your risk of loss if the institution were to fail.

(We’ll discuss the concepts of “concentration” and “spreading your eggs” in an upcoming article, “Investment Risks: A Guide for Small Investors”.)

Trinidad and Tobago Securities and Exchange Commission (TTSEC)

In many respects, the TTSEC performs a similar role as CBTT, except specifically for the securities industry.

Registration

The TTSEC requires two types of registration:

(a) All individuals or companies dealing in securities have to be registered with SEC. This is an important requirement, and you are encouraged only to deal with registered persons/companies. Through the registration process, the TTSEC ensures the person/company is qualified to deal with the public.

A list of current registrants can be found here.

(b) As a general statement, securities distributed to the public have to registered with the TTSEC. This process does not evaluate whether it is a “good” or “bad” investment, but (in summary) ensures that potential investors have adequate information to make an investment decision. Securities distributed to the public have to be disclosed in a document called a “prospectus”.

Regulations

TTSEC issues and enforces rules and standards to ensure the orderly functioning of the market.

Supervision

TTSEC monitors issuers of securities, market activity, and more generally, all market actors to ensure they comply with the Securities Act 2012 and other requirements issued by the TTSEC.

Complaints

While CBTT does not directly handle complaints from the public (these should be directed to the Financial Services Ombudsman – see below), the TTSEC reviews and investigates all complaints and whistleblower tips related to the securities industry.

Trinidad and Tobago Stock Exchange (TTSE)

It is worth mentioning the role of TTSE in the context of the TTSEC.

TTSEC oversees the activities of TTSE, but the TTSE directly regulates secondary market trading and the activities of its members (i.e. authorized stockbrokers). The TTSE also has rules governing financial and other disclosures that companies listed on the exchange should follow.

Financial Services Ombudsman (FSO)

The second (and more general) avenue investors can use when they have a complaint is through the The Office of the Financial Services Ombudsman. For clarity, the FSO is available to all users of financial services and not only investors.

Entering into a dispute with a financial services company can sometimes feel like a David and Goliath struggle. But if you are not satisfied with your commercial bank, licensed financial institution, or insurance company, you can approach the FSO who could mediate on your behalf.

This is a free service and the list of participating institutions can be found here.

The Courts

The last major source of protection for investors is entering into legal action. Although, depending on the circumstances, it could be a lengthy or expensive process, the point is that our courts are accessible to anyone wishing to right a perceived wrong,

Wrap up

Our investing environment is continually changing, and while it has taken time for the various pieces to be put into place, it is apparent that investor protection has become one of the primary objectives. After all, no market can exist without consumers, and the markets cannot flourish when they lack confidence in the institutions.

We hope you enjoyed reading this article. This series continues with Investing Risk versus Reward. Hope you check it out!

Please feel free to share your thoughts or experiences in the comments area below! If you have questions, don’t hesitate to Contact Us: we’d love the opportunity to assist you.

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Hi. I hope you enjoy reading the posts! I have 20 years regional and international experience in financial services, and I am passionate about helping others achieve Financial Freedom by making wise financial decisions. Keep coming back!

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